The LEARNING library

MyRA

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Traverse City Record Eagle

In this article Dennis delves deeper into the pros and cons of the MyRA, described by the Department of the Treasury as a new retirement savings account for individuals looking for a simple, safe, and affordable way to start saving.

Some investors may question why they should consider a MyRA when so many financial advisors online have panned the concept.

My belief is they are reacting too quickly to the MyRA, which is described by the Department of the Treasury as a new retirement savings account for individuals looking for a simple, safe, and affordable way to start saving. The department says savers will be able to open an account with as a little as $25 and contribute $5 or more every payday.

Many years ago, I remember thinking those who bought very boring savings bonds were getting fleeced by investing in bonds which, at that time, were earning a subpar rate of 5.5 to 6.0 percent

Two things are important about that. First, given today’s interest rates, that return is phenomenal. Second, the interest grows tax-deferred on savings bonds, i.e. you pay no tax until they’re redeemed. This makes them a great place to store and grow conservative assets for those who purchased them in the early 80s. What’s interesting about this lesson I learned? The MyRA may be useful and even beneficial for some. Do I hear a collective gasp?

The account as proposed has the tax qualities of a Roth. That means that after contributions, which are not tax deductible when made, the account grows tax free if you hold it for more than five years. Second, there are very low minimums, like $25 per month sponsored through employers. Third, the MyRA guarantees principle, offering the same interest rate as the current “G” fund in the federal employees retirement account, at a current rate of about 2 percent. This is certainly nothing to get excited about, but guaranteed principle is guaranteed principle.

For those who really don’t care for the gyrations of the stock market, the MyRA may be
of interest in more ways than one. Some questions follow that may help in determining
your current allocations’ appropriateness, and the potential benefits this type of account
may have for you.

  • Are you willing to make a relatively long-term commitment to a retirement account?
  • Would a fixed account with current interest rates make sense for you given the rest of
    your long-term savings options?
  • Are you already taking advantage of a 401 (k) or other type retirement account and
    receiving the benefits of that account plus the matching of your contributions to
    the same?

Please note that if you are not currently taking advantage of these types of plans with
matching contributions, and you have them available, you may be losing a significant
long-term retirement benefit offering many of the same benefits of the MyRA as well
as others, which may include the match. Many 401k’s offer a Roth option that you may
decide to take advantage of.

The MyRA may make sense given your risk tolerance, other account options and long
term savings goals. Of course, our Congress has to write the law allowing this new
savings vehicle, and as usual, it is all about the details.

Bottom line? If possible, save for retirement, and make use of the current law for your
own arsenal of retirement accounts. Of course none of us knows how long we’ll need
to collect income from these accounts. So, the more efficient you can be with your
own retirement accumulation and the more tax-efficient the withdrawals to fund your
retirement, hopefully all the better for you to maximize your retirement capabilities. It’s
not just about the accumulation. It’s truly about how to make those withdrawals, and
where to draw them from.

The complexity increases (unfortunately) and this account will add to it. Some may find it
helpful to view this as another technology option available to them. Diagnosis may be the
best way to view this type of account. It’s truly all about what you own, and whether this
account may augment significantly what you are doing as well as assist you on your way
to financial independence. Try not to prejudge, let us see what comes.